Corporate cash holdings and investment in South Africa surrounding the recent global financial crisis

  • David Lemaître

Student thesis: Master typesMaster de spécialisation en économie internationale et du développement


This thesis examines corporate cash holdings and private investment in South Africa in the context of the recent global financial crisis. The relationship between corporate cash holdings and private investment has been widely studied in the literature. However, this topic has been the focus of much less research in the South African context. We firstly analyse cash holdings in respectively 13 mining firms and 10 retail firms surrounding the recent crisis. For this purpose, we make use of panel OLS with fixed and random effect models. We cover the period between 2001 and 2016 in our analysis. We observe different results. In the retail sector, firms initially have a high level of cash and appear as more resilient surrounding the crisis. We report a propensity to maintain steady activities despite the financial turmoil. In other words, retail firms continue to pay dividends and to invest. In the mining sector, we observe a propensity to reduce dividends payment and to use cash flow to pay costs. Accordingly, mining corporates contract their activities to save cash during the crisis and significantly reduce their investments after the shock. In this case, these firms reduce their business value. We thereafter depict investments sensitivity to cash and cash flow in both sectors after the crisis. To achieve this, we make use of a dummy variable to capture the post-crisis period. Our results are not significant. However, and considering the overall period without a dummy variable, we find a positive and statistically significant correlation between investments and cash flow in the mining sector. Hence, a cash or cash flow shortage significantly and negatively affects investments. We do not obtain significant results in the retail sector. Finally, we make use of a vector autoregressive model, an orthogonalized impulse response function, and variance decomposition, for a horizon of eight to depict investment reaction to a shock on cash flow. Results highlight a positive reaction of investments to a deviation in cash flow in the retail sector, while results are not significant in the mining sector. A standard deviation of cash flow induces a response of 0.02 on investments, while a standard deviation of investments induces a response of less than -0.01 on cash flow. The variance decomposition reports a variation of 28% on average in investments to a shock on cash flow in the retail sector, while the variation is of 10% in the mining sector. Our thesis shows the importance of internal financing resources to maintain steady activities surrounding a financial crisis.
la date de réponsesept. 2021
langue originaleAnglais
L'institution diplômante
  • Universite de Namur
SuperviseurRomain Houssa (Promoteur) & Modeste Daye (Copromoteur)

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